Government of IndiaMinistry of Finance Budget 97-98

Budget Highlights

Budget Highlights
Part A

New Delhi:Phalgun 9, 1918
February 28, 1997

Budget Highlights
Part B

New Delhi, Phalguna 09, 1918
February 28, 1997

The Finance Minister Shri P. Chidambaram, today announced lower Income Tax rates of 10, 20 and 30% as against the existing 15, 30 and 40%. The rate will be 10% in the first slab of Rs. 40,000 to Rs. 60,000, 20% in the slab of Rs. 60,000 to Rs. 150,000 and 30% for all incomes above Rs. 150,000. Presenting the Second Budget of the United Front Government in the Lok Sabha today, the Finance Minister announced his intention to widen the tax net by amending the Income Tax Act. Under the new proposal residents of large metropolitan cities who satisfy certain economic criteria should voluntarily file the tax return as they would normally fall within the taxable slabs. Shri P. Chidambaram also introduced a new tax scheme for retailers having a total turnover of less than Rs. 40 lakhs. The income will be estimated at 5 per cent of the total turnover. A Voluntary Disclosure Scheme to harness 'black money' for productive purposes was also announced. A substantial portion of the resources to be secured through this scheme, 77.5% will accrue to the State Governments while the Central Government share will be used for financing the Basic Minimum Services Programme and infrastructure. Senior citizens can now avail a 100 per cent rate of rebate upto a limit of Rs. 10,000 which means those senior citizens having an income upto Rs. 1 lakh will not have to pay any tax. A 100 per cent tax deduction has also been provided for donations to the Chief Minister's/ Lt. Governor's relief fund.

Corporate Tax and Minimum Alternate Tax

Shri Chidambaram has abolished the surcharge on corporate tax and reduced the tax rate to 35 per cent for domestic companies and 48% for foreign companies. The Capital Gains Tax rate on transfer of securities by Non-Resident Indians has been reduced by 10 percent from the existing 20 per cent

The Minimum Alternate Tax introduced last year has been modified to provide for a system of credit which can be carried forward for a period of five assessment years. The Budget has exempted export profits from Minimum Alternate Tax (MAT).

Incentives for Investment

With a view to reward companies who invest in future growth and plough back their profits for fresh investments, the Budget proposes to levy a tax of 10 percent on distributed profits. This tax will be on the company and will not be passed on to the share holder. The Tax Deduction at Source on Government securities giltshas been abolished and gilts will now qualify for a higher deduction limit of Rs. 15,000 under the IT Act. A tax holiday has been given for investments in the telecommunications sector and the rate of tax on interest income of lending institutions has been reduced to 2 per cent.

Indirect Tax Proposals

Customs duty

On the Indirect Tax proposals, the Budget has been guided by the principle of bringing India's tariffs in accordance with world levels in a measured manner, giving time to Indian industry to adjust to the changes.

In keeping with this principle, the Budget proposes reduction in the peak rate of customs duty from 50 per cent to 40 per cent. Duty on capital goods has been reduced by 5 per cent to 20 per cent and the Finance Minister has said that these rates would need to be further adjusted in the next two or three years to match Asian levels.

Duty on inputs for the steel industry and organic and inorganic chemicals has been reduced. Coking coal and nickel will now attract lower rates of duty. Non-coking coal used in the power sector will also attract a reduced duty of 10 per cent which will give a fillip to the energy sector.

To increase the competitiveness of the textile sector and in order to improve the quality of our export garments, Shri Chidambaram has reduced the customs duty on textile machinery and some category of processing machinery. This step is necessary for the indigenous textile sector which will have to face stiff competition with the scheduled removal of quantitative restrictions. A big fillip has been given to the information technology industry by fully exempting computer software from customs duty and reducing duty on computer parts, circuit boards, colour picture tubes and monitor tubes, cell phones and telecom equipment. The watch industry has also benefitted from reduced customs duty on parts.

The customs duty on baggage has been reduced from 60 to 50 per cent.

Excise Duty

The Budget has proposed further rationalisation of excise duty which were earlier very dispersed and complex. Three new rates of 8 per cent, 13 per cent and 18 per cent have been introduced and the Finance Minister has announced the Government's intention to move towards an average rate of around 18 per cent. It may be recalled that the Finance Minister had initiated a process of simplification and rationalisation of excise duty last year and he has promised to have a four rate structure within three years.

The Budget proposes a nominal duty of 8 percent on jams, jellies, sauces and soups and on high value pens and ball point pens. Items of mass consumption like toiletry, biscuits, glass kitchen and table ware will attract lower rates of excise duty. Cocoa, coffee and a host of consumer durables will also attract lower duty. The duty exemption for agricultural and horticultural machinery has been extended to the dairy industry.

Cigarettes and biris have become dearer. The increases range from Rs. 20 to Rs. 70 per thousand for cigarettes and Rs.5 to Rs. 6 per thousand for biris.

The small scale sector will benefit from simplified excise duty concessions. A flat rate of duty of 3 per cent ad-valorem on clearances between Rs. 30 and Rs. 50 lakh and 5 per cent ad-valorem on clearances between Rs. 50 and Rs. 100 lakhs has been proposed.

Since the services sector is an important contributor to the Gross Domestic Product, the Budget has proposed to extend further the service tax to goods transportation by roads, consulting engineers, customs house and forwarding agents. The Rs. 900 crore expected to be mobilised through this measure during the financial year 1997-98 will be used largely for improving the national highways.

Ordinary postcards and printed postcards, inland letters and envelopes have become dearer. The ordinary post card will now cost 25 paise and printed post card Rs. 1.50. Inland letters will cost Re.1 and envelopes Rs.2.00. The changes will become effective from a date to be notified later.

The Finance Minister informed Parliament that the fiscal deficit for 1997-98 will be 4.5 percent of GDP and comes to Rs. 65,454 crore. The Finance Minister has promised to bring down the fiscal deficit to under 4 per cent in the next Budget. While the excise duty proposals are broadly revenue neutral, the reduction in customs duty is estimated to result in a loss of Rs. 2625 crore. However, it is hoped that the buoyancy and growth momentum which will be given to the economy will compensate for the losses. The Finance Minister Mr. P. Chidambaram quoting from the late Deng Xiao Peng said "Development is the only hard truth." Shri Chidambaram said "India's economy has also reached a new stage. Our beloved India is far stronger today than she was six years ago."


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